Research On The Interaction Between Financial Derivatives Supervision And Market Changes

The supervision of financial derivatives has become the focus of attention after subprime mortgage crisis in 2008.The mainstream view holds that the lack of supervision is one of the important reasons of risks,and the post-crisis regulatory reform has also followed this line of thinking.However,the effect of regulatory reform has implemented slowly in some countries,and conflicts between different parties has also made international reform cooperation difficult.A few years after the crisis,the regulatory in some markets are looming again.This phenomenon shows that the response behavior of relevant parties to regulatory reform is one of the key factors that affect the changes of regulatory system.Therefore,the research of financial supervision should not only focus on regulatory laws and economic principles,but also pay attention to the interaction of all relevant parties,so that we can study the implementation effect and potential impact of the regulatory policies.Based on this consideration,this article takes the interaction in regulatory process as the core research object,focusing on the behavioral interaction between the market participants regulatory authorities in financial derivatives markets.We choose financial derivatives market for research because it is relevant to the global crisis in 2018.What's more,financial derivatives instruments are more flexible for avoiding regulation,participants of this market have more abilities to compete with,and market development is more sensitive to regulatory changes.As a result,there're more interaction behaviors in financial derivatives market.Since the regulatory interaction is based on human behavior,it's not enough to simply rely on theoretical analysis,we must make research on the basis of actual cases.In the history of financial derivatives market development,there have been many classic cases in which the market interacted with the regulatory authorities.Therefore,this article uses incident analysis as the main research method.In theoretical research,we describe the interactive mechanism and system evolution through game theory model deduction.At the same time,we try to quantify the regulatory effects with quantitative tools.The outbreak of the financial crisis shows the limitation of data in OTC derivatives market,which means that the quantitative research method is of secondary importance in this article.In the aspect of research content,we focuses on the internal mechanism and effect of regulatory interaction,that is,how regulatory interaction is formed,what the result is,and how regulatory interaction affects the realization of regulatory objectives.Since the research must be based on the practice of market development and regulation,the development of the mature market is still the main research object of this article,and the situation of emerging markets is also involved.From the practice of market development,it can be found that the alternative flourish of exchange market and OTC market is the main line of development for the financial derivatives market,and we also focuses on this feature.In the process of research,in addition to financial practical knowledge and economics theory,the contents of politics,culture,law and other disciplines are also involved.In terms of content arrangement,we pay attention to the internal mechanism of regulatory interaction,the influence of regulatory interaction,the interaction during the regulatory reform of G20 countries after 2008,and finally analyze the regulatory interaction of the financial derivatives market in China.Before the formal research is started,we first make a general analysis of the basic concepts and background materials involved in the research,focusing on various market participants involved in regulatory interaction.We find that derivative exchanges in both emerging markets and mature markets have all made improvements in large-scale and diversified operation.In OTC market,the development of the traditional financial derivatives market is basically stable,as emerging products,the transaction scale of credit derivatives fluctuates significantly with the changes of regulatory environment,and derivatives exchanges also operate in the OTC market.In terms of regulation,large-scale exchanges in mature markets have mostly established sound self-regulation systems and several major international self-regulatory organizations also have strong industry influence.Government regulatory model can be divided into multiple models,unified model and bimodal model,which all have their own advantages and disadvantages.Overall,most participants in financial derivatives market are powerful,which also determines its behavior in the interactive mode.Secondly,we study the internal mechanism of regulatory interaction on the base of game theory and institutional economics theory.The core mechanism of regulatory interaction is the behavioral gambling between interactive actors,which leads to the formation and change of system.Therefore,the regulatory interaction can be transformed into the institutional change from the perspective of gaming.We have built a game theory model and a model of institutional change.In the game theory model,main gambling participants include regulation authorities,main participants of exchange market and OTC market,the public and the academic researchers.The dynamic game model of institutional change includes a macro regulation game model and a micro regulation game model.Using practical materials,we then study the regulatory interaction mechanism of global financial derivatives market both horizontally and vertically.The horizontal research studies the regulatory interaction under different market development modes,while the vertical research focuses on the development contexts of global markets from the perspective of regulatory interaction.By explaining the institutional changes of financial derivatives market from the perspective regulatory interaction,we can make a good foundation for later research.Thirdly,we divide the purpose of financial supervision into three aspects: market development promotion,market safeguarding and investor protection,and then study the impact of regulatory interaction on these aspects.In financial derivatives market,innovation comes out faster,which asks regulatory system to update at a higher speed.If regulatory changes lag behind the market development,the market of new product will prone to regulatory uncertainty.As important tools of regulatory evasion,financial derivatives have become one of the major forces of regulatory structures reform in some markets.Therefore,we study the impact of regulatory factors on market development from three aspects: regulatory synchronization,regulatory uncertainty and regulatory structure.The effect of regulatory interaction on market development can also be analyzed from the perspective of the market.Based on the product life cycle theory,we find that regulatory factors play different roles in market competition at different market development stages.When the supply of the regulation system can't match what market development requires,the market will promote the reform of regulatory system.In terms of market security effects,combining with theory and practice,it can be found that the motivation of self-regulation in exchange market is stronger than that of OTC market.However,self-regulation of both parties has their own limitations,so regulatory authorities should make institutional arrangements.What kind of institutional arrangements the regulatory authorities make and the extent of their regulation all have a direct impact on interactive behaviors of market players and the market safety.In this section,we study the performance of some major derivatives markets in the global stock market crash of 1987,and analyze the causes of the global financial crisis in 2008.In the aspect of investor protection,we focus on the protection of small investors In the process of regulatory interaction.We select foreign exchange margin as the research object,which is mainly invested by small investors.The vertical analysis studies how investor protection system improve continuously in this market,and the horizontal research makes a comparison of different investor protection system in global foreign exchange margin market.In addition,we briefly analyze the reform of the global market in this area after the current crisis,and show the significant progress of the investor protection system in foreign exchange margin market in Australian market.After the subprime mortgage crisis in 2008,the form of regulatory interaction changed clearly once again,with international supervisory cooperation receiving unprecedented attention,which has brought new valuable research issues of regulatory.With measurement tools,we study the market impact of the important events of international regulatory cooperation,namely,the deference of settlement between the US and the EU,and finds that the regulatory behavior game has caused a significant segmentation effect between these two major financial derivatives markets.An empirical research of the effects of central clearing reform in the US,EU and Japan shows that the reform in the United States is the only event that affects all other two currencies and that in most cases this impact is higher than that of EU and Japan.In addition,by collecting daily news of derivatives market and regulatory areas since 2013,it is found that various new market infrastructure,financial technology providers and large exchanges benefit most of the reform,some of these institutions are facing the problem of potential risk accumulation,which further determines the new direction of the global regulatory reform.Finally,we analyze the regulatory interaction of China's financial derivatives market.We successively study the financial derivatives market without supervision in 1990 s,the evolution of relevant regulatory laws and regulations,and the performance of derivatives markets during the 2015 stock market transition,and so on.For the long-term foreign exchange in China The margin market has also conducted research and echoed the previous text.As the conclusion,we believe that presently the core task of China's financial derivatives market construction lies in the construction of the regulatory system.More attention should be paid to the improvement of relevant legal system,the reform of the separation supervision system and the strengthening of self-regulatory supervision system,all of which are the important tasks of system construction.Overall,by selecting regulatory interaction as the research object,we provide a new perspective for the study of financial regulation,and it also has practical significance for the construction of China's financial derivatives market.Due to the large differences between financial derivatives market in China and Western countries,some researches in western countries are of limited applicability to our country.Although the emerging markets have paid more attention to market safety,the financial systems in these countries and regions are quite different,which means that their implications for financial derivatives market construction are also limited helpful to China.Therefore,attempting to build a regulatory system that is in line with our own conditions is the ultimate goal of this article.Finally,during the writing of this article,the fundamental changes have taken place in China's financial market and regulatory system.The market has successively experienced the era of big asset management with relaxed regulation and the subsequent overall tightening of supervision.In the period of drastic change of system,more attention should be paid to the regulatory interaction.What we have found in this article also have some reference to the development and regulation of the entire financial market in our country.